Facilitating the Market for Capacity Building Services

15 September 2014
Facilitation can take place only if there is an understanding of the market actors and market dynamics.
In markets with high levels of financial exclusion, actors in the financial system—financial service providers (FSPs), consumers, providers of financial system infrastructure and other market supporting functions, regulators and other policy makers—often face capacity limitations. These include insufficient or inexperienced staff, lack of knowledge or understanding of the market, and limited financial literacy. Building sustainable and inclusive financial markets will require building the capacity of these actors. Funders that work to promote financial inclusion can play a very useful role in tackling capacity challenges, particularly if they provide support in a way that facilitates the development of a capacity building services market. This approach can benefit the whole financial market as opposed to the more common approach of providing direct support to one or a few actors in the market.
 
This Focus Note builds on the ideas discussed in “Facilitating Market Development to Advance Financial Inclusion” (El-Zoghbi and Lauer 2013) and addresses the capacity issues faced by retail financial service providers. Drawing on examples, this Focus Note addresses the question: what does it take to facilitate a sustainable, commercially viable market for capacity building services delivered to FSPs?
 
Because every market is unique, the specific steps to be taken by facilitators or funders (some of whom act as facilitators themselves) will vary from one market to the next and will change over time with the development of the market. Thus, this Focus Note is not intended to be a “how to” manual but rather it sketches out, for illustrative purposes only, three general scenarios for capacity building services markets—little demand, weak supply, constraints resulting from inadequate supporting infrastructure or a weak enabling environment—and the approaches that could be taken to facilitate the development of such markets.
 
Why focus on capacity building of FSPs? There are two reasons. First, while all market players are important to the development of a market, the fundamental basis for success of any significant and meaningful financial inclusion effort is the presence of sustainable financial service providers. Second, providers of capacity building services for FSPs can become commercially sustainable. In contrast, a sustainable capacity building services market for poor consumers and/or policy makers typically relies on long-term subsidies, either by government or donors.
 
While there has been significant attention given to capacity building of FSPs, too often support has led to inefficient delivery or has addressed those needs identified and prioritized not by FSPs but by funders. The market for capacity building services continues to be hampered by inappropriate subsidies that can distort the market. Specifically, such subsidies may dissuade capacity building providers from trying to build sustainable businesses and may reduce FSPs’ interest and willingness to seek services without donor subsidies.